8 Lucky Tips for a Debt Free Year
Obviously we rely heavily on credit, loans and other forms of assistance regularly in modern life to take steps to improving our overall wellbeing. However, events that lead to things such as the global financial crisis were generally results of what could be referred to as complacency towards debt and credit, most obviously manifesting itself in the North American property market.
Borrowing credit or a loan from a bank to invest in property is often essential for many young families, however an understanding of the gravity of these loans is an important step in ensuring that the dream home doesn’t turn into a life-long nightmare. These debts and loans are often necessary and property is not an unsafe investment, however an understanding and plan is always important. On a smaller scale, debt can also build from a simple lack of care taken in managing ones spending. Pouring heavy expenditure into credit cards, which in turn build interest, if not managed properly can cause individuals fall into further debt by taking loans to attempt to alleviate growing interest on an existing loan. Whatever the specifics are, this is a situation people don’t want to find themselves in, so here following are some good tips to help avoid that troublesome debt pit.
Knowing your spending and calculating your debts can be one of the most effective ways to avoid falling into troublesome debt. Also, knowing the different forms of debt and loans can also help ensure that your debt never becomes unmanageable and starts to cause financial strain. For example, credit card debt and instalment loans can be damaging as they build interest and can fluctuate. However, debts like home mortgages and education loans can actually be positive, as they maintain a steady value and can be used to offset taxes and have hard physical value. An investment in property or education can seem daunting in the beginning as the overall outlay is much more than buying a new TV on a credit card, however an investment in education is in the safer realms of loan investment, as the benefits to your life long-term can earn back ten-fold what you outlay, unlike that new 3D TV.
It might seem like an obvious one but what sees many people fall into debt is simply a lack of self-control under temptation. In the modern world it is extremely easy to be tempted by advertising and media marketing to make one feel the need to posses a certain something. This combined with the buy now and pay later attitude of credit card users can combine in a worrying circumstance of overspending on tempting but unnecessary goods. For example, if there happens to be a multitude of dining options surrounding your office, with meals set at around $10, then daily expenditure on a lunch totals around $200 per month. Instead, free yourself from this unnecessary spending by planning and budgeting your eating (e.g. packing snacks from home) and avoid the temptation to spend.
By prioritising our needs we can avoid over expenditure on things that don’t end up holding their value and simply cost us money in loans in the long run. A loan should only ever be taken for something that is worth the value you are paying for it and justifies the added interest and the movement into debt that the purchase entails. Prioritising can also be useful to combat existing debts, for example, look at your credit cards and bank loans, evaluate the interest rates and costs on each and prioritise payments on the debts that are tapping the most money in fees. The more quickly we handle costly debt, the sooner we can begin our self-control and avoid re-entering such situations.
Cash is Best, Leave the Cards at Home
Another very simple and almost obvious technique is to endeavour to use cash. Cash means that when we pay the value of an item, generally it is a one-off and completed transaction. We can’t go into minus or negatives on cash payments and cash doesn’t allow us any credit terms. The result? If we don’t have the credit cards it becomes a great deal harder to rack up debts on them. Some might even argue to go as far and to throw away credit cards, or at least prioritise everything onto one manageable credit card to avoid a multitude of separate debts culminating in a large and troublesome one.
A common tip many people will give to others when concerned with money problems is to not be ignorant of your money, by which they mean monitor all spending. One of the best ways to do this is to allow a certain time period, perhaps a week or two; during which time take note of every expense and keep a running total. Following this, it is easy to categorise different forms of expenditure into sub groups; food, leisure, household etc. If something doesn’t add up or you notice something is using more money than you had initially thought then perfect! This is the purpose of such an exercise. It is very easy for us to overspend on sundry items when we don’t have to face the reality of this spending head on. Coming to a realisation that your extra cup of coffee on the way to work each morning is consuming nearly $100 a month is a much better motivator to cut down than ignoring the cost and just tapping Paywave each morning at the café.
Search New Options
Laziness or lack of motivation for a better option can be a huge contributor in falling into debt, it may seem difficult to provide everything you need within the boundaries of your earnings, however some time spent on research might reveal the availability of everything you need on a much tighter budget. Budget supermarkets such as Aldi and Costco have become increasingly popular in Australia for good reason; they are immeasurably more affordable for many items. In addition to this, online coupons, special offers and promotions can also afford you many everyday items at cut prices. Just be aware that a good deal that is unnecessary can be equally as damaging as over expenditure, and that a movement towards budget products should also go hand in hand with self control.
Save Spares and Bill Yourself
Within our budgeting and financial managing we can often find ourselves with leftover earnings once we tighten up our spending. Now before heading to the bar to burn through that leftover money, perhaps consider how nice the bars are in Cambodia or Switzerland. Doesn’t that sound a little more interesting? Even if it doesn’t not spending your extras is a flawless way to beef up what is left in your bank and over enough time this can be a not insignificant amount. If this sounds good to you then why not try and force more of this upon yourself? Write yourself a bill each month, for example you owe your savings $100 per month and see if this can fit into your budget. It’s not really expenditure but rather including your savings as part of your budget. Another very helpful technique with this is to operate more than one bank account, having a savings account not affiliated with any credit or debit card. Each month or quartile simply set up an automatic transfer to be billed into your savings account and eventually this will become an unconscious part of your budgeting. When you go to redeem the reward to pay that holiday or wedding or anniversary, the result may surprise you with its effect.
Everything we do will in some way impact our finances, it is an undeniable truth of the modern world, therefore, to be effective in our finances and avoid debt it is important to understanding the importance of budgeting for everything we can. Living on a budget often sounds meticulous and impeding, however budgeting done right can easily become second nature and actually be profoundly rewarding and fun. Numerous outlines and guides exist online and in books, from one-page itemizations to a multi-page spread sheet and there is always the option of paid professional help. The key is, don’t try and budget in a way that looks effective and has proven useful for others. Instead, find a system that is not only effective, but that you fully understand and can take control of, this will help make budgeting more enjoyable and in turn more effective for you specifically.
Morgan writes for SurveyCompare.